Can You Control the Outcome of a Free Market?

The president thinks income inequality will divert the public’s attention from Obamacare. USA Today has the story:

‘President Obama sought to revive the issue of growing income equality on Wednesday, saying it restricts economic mobility and threatens to shrink the middle class.

‘"I believe this is the defining challenge of our time," Obama said in a speech at an event hosted by the Center for American Progress, a pro-Obama think tank. "It drives everything I do in this office."

‘The growing gap between rich and poor can be closed by actions ranging from an increase in the minimum wage to better education to following through on his health-care plan, Obama said.

‘Obama also again proposed creation of government-assisted "Promise Zones" in urban and rural areas that are struggling.

‘Obama said the average CEO now makes 273 times the income of the average worker.‘

Where did he get that number? Out of his hat, we suppose…along with the rest of his ideas.

In our company, the CEO makes maybe about 10 times as much as the average employee. We’d be surprised if it were much different in other small businesses.

Let’s see, the average worker makes about $40,000. So 273 times that is $10,970,000. We’ve met some good CEOs, but never one who was worth $10 million a year. Not even close. Who would pay a CEO that kind of money? Only a public company with cronies on the compensation committee and shareholders who aren’t paying attention!

Is Obama right? Is there something wrong with one person making a lot more than another? Is redistributing wealth from the person who earned it to the person who didn’t the ‘defining challenge of our time’?

If so, can you control the outcome of a free market…and still have a free market?

But who cares? The trouble with free markets is they don’t necessarily deliver the results you want. As far as material success is concerned, nothing can beat the free enterprise system (the freer the better).

No economist has ever put forward a serious proposal for making it more productive. No improvement has ever been forced upon it. No rival system has ever raced ahead of it.

But the improvers talk about ‘fairness’, ‘social consequences’ and the ‘political environment’ in which an economy operates. They say there’s a ‘trade-off’ between the ideal of free markets…and a fair, democratic society.

That’s what seems to stick in President Obama’s craw: that the trade-off has gotten out of balance. Markets are too free, he believes; they deliver outcomes that voters don’t like.

‘It’s either money or control,‘ says a friend of ours.

‘You get money by giving up control…and letting markets work.

‘But you, personally, don’t necessarily get what you want. And if you try to control an outcome, it’s gonna cost you.‘

Rich people want to control things because they want to protect what they have. Poor people want to control things because they want more of what other people have.

Nobody – save a few philosophers and wing-nut economists – is willing to let the chips fall where they may.

‘It’s all a matter of envy,‘ continues our friend. ‘And greed. Everybody wants what he can’t get honestly. He turns to the government to get it.‘

And then he changes his tune…instead of talking about what he wants, he refers to what he says would be ‘best for the society’…or what would ‘help the economy’.

What we all want is an economy that delivers our own version of ‘fairness’, which almost always involves more for us and less for everybody else.

It’s an economy that is so finely controlled that what we do no longer determines what we get. We can step on all the rakes we want; never will the handle come up and hit us in the face.

Instead, everything is under control. We get outcomes that are the result neither of choice nor chance, but of crony connections and the master plan. In short, we all want to live in North Korea – until we actually see the place.

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Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

If you have need of a minimum wage to prevent the masses being exploited by the few, then it is only logical that you need a maximum wage to prevent the exploitation at the other end of the opportunity curve. It is simple really. Business owners can do what ever they like, isn’t this what Equity markets permit, remunerating the owners of a business via Dividends? Fully private organisations can remunerate as they see fit, it is the owners property. Employees should have their remuneration operate within a fixed ratio. 20 times the average wage across their organisation. If they… Read more »

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